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The Use of Credit Scoring Models and the Importance of a Credit Culture Dr. Edward I. Altman Stern School of Business New York University Evolution of Scoring Systems • Qualitative (Subjective) • Univariate (Accounting/Market Measures) • Multivariate (Accounting/Market Measures) – Discriminant, Logit, Probit Models (Linear, Quadratic) – Non-Linear Models (e.g.., RPA, NN) • Discriminant and Logit Models in Use – – – – – – Consumer Models - Fair Isaacs Z-Score (5) - Manufacturing ZETA Score (7) - Industrials Private Firm Models (eg. Risk Calc (Moody’s), Z” Score) EM Score (4) - Emerging Markets, Industrial Other - Bank Specialized Systems 2 Evolution of Scoring Systems (continued) • Artificial Intelligence Systems – Expert Systems – Neural Networks (eg. Credit Model (S&P), CBI (Italy)) • Option/Contingent Claims Models – Risk of Ruin – KMV Credit Monitor Model • Blended Ratio/Market Value Models – Moody’s Risk Cal – Bond Score (Credit Sights) – Z-Score (Market Value Model) 3 Problems With Traditional Financial Ratio Analysis 1 Univariate Technique 1-at-a-time 2 No “Bottom Line” 3 Subjective Weightings 4 Ambiguous 5 Misleading 4 Forecasting Distress With Discriminant Analysis Linear Form Z = a1x1 + a2x2 + a3x3 + …… + anxn Z = Discriminant Score (Z Score) a1 an = Discriminant Coefficients (Weights) x1 xn = Discriminant Variables (e.g. Ratios) Example x x x EBIT TA x x x x x x x x x x x x x x x x x x x x x x xx x x x x x x x x x x x x EQUITY/DEBT 5 “Z” Score Component Definitions Variable X1 Definition Weighting Factor Working Capital 1.2 Total Assets X2 Retained Earnings 1.4 Total Assets X3 EBIT 3.3 Total Assets X4 Market Value of Equity 0.6 Book Value of Total Liabilities X5 Sales Total Assets 1.0 6 Z Score Bankruptcy Model Z = .012X1 + .014X2 + .033X3 + .006X4 + .999X5 e.g. 20.0% Z = 1.2X1 + 1.4X2 + 3.3X3 + .6X4 + .999X5 e.g. 0.20 X1 = Current Assets - Current Liabilities X4 = Market Value of Equity Total Assets X2 = Retained Earnings Total Assets Total Liabilities X5 = Sales (= # of Times Total Assets e.g. 2.0x) X3 = Earnings Before Interest and Taxes Total Assets 7 Zones of Discrimination: Original Z - Score Model Z > 2.99 - “Safe” Zone 1.8 < Z < 2.99 - “Grey” Zone Z < 1.80 - “Distress” Zone 8 Average Z-Score by S&P Bond Rating S&P 500: 1992 - 2001 Rating AAA 1996-2001 # Average Firms Z Score SD 66 6.20 3.06 1995 1994 1993 1992 Average Average Average Average Z Score SD Z Score SD Z Score SD Z Score SD 5.02 1.60 4.38 1.38 4.51 1.50 5.26 2.19 AA 194 4.73 2.36 4.30 1.91 4.05 1.83 4.03 1.89 4.23 2.09 A 519 3.74 2.29 3.61 2.26 3.47 2.01 3.61 2.18 3.92 3.26 BBB 530 2.81 1.48 2.78 1.49 2.70 1.58 2.84 1.74 2.60 1.54 BB 538 2.38 1.85 2.45 1.62 2.28 1.69 2.19 1.63 2.10 1.54 B 390 1.80 1.91 1.67 1.23 1.88 1.52 1.96 1.72 1.96 2.33 9 0.33 1.16 CCC+CC 9 Estimating Probability of Default and Probability of Loss Given Defaults • Credit scores on new issues to estimate • Bond ratings equivalents on new issues and then, • Utilize mortality rates to estimate annual and cumulative defaults 10 Marginal and Cumulative Mortality Rate Equation MMR(t) = Total value of defaulting debt in year (t) total value of the population at the start of the year (t) MMR = Marginal Mortality Rate One can measure the cumulative mortality rate (CMR) over a specific time period (1,2,…, T years) by subtracting the product of the surviving populations of each of the previous years from one (1.0), that is, CMR(t) = 1 - Π SR(t) , t=1 here CMR (t) = Cumulative Mortality Rate in (t), SR (t) = Survival Rate in (t) , 1 - MMR (t) 11 Mortality Rate Concept (Illustrative Calculation) For BB Rated Issues Security No. Issued Amount Year 1 Default Call SF Year 2 Default Call SF 50 50 100 100 150 150 200 200 250 250 -50 --------- --100 -------- 5 -----20 ---- -NE NE 100 ------- -NE NE ----200 --- 5 NE NE -15 -20 ---- Total 1,500 50 100 25 100 200 40 Amount Start of Period 1,500 1,325 - 340 1 2 3 4 5 6 7 8 9 10 - 175 - = Year 1 Year 2 Marginal Mortality Rate 50/1,500 = 3.3% 100/1,325 = 7.5% Cumulative Rate 3.3% 1 - (SR1 x SR2 ) = CMR2 1 - (96.7% x 92.5%) = 10.55% 985 NE = No longer in existence SF = Sinking fund 12 Mortality Rates by Original Rating All Rated Corporate Bondsa 1971-2003 1 2 3 4 Years after Issuance 5 6 7 8 9 10 AAA Marginal Cumulative 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.03% 0.03% 0.00% 0.03% 0.00% 0.03% 0.00% 0.03% 0.00% 0.03% 0.00% 0.03% AA Marginal Cumulative 0.00% 0.00% 0.00% 0.00% 0.33% 0.33% 0.17% 0.50% 0.00% 0.50% 0.00% 0.50% 0.00% 0.50% 0.00% 0.50% 0.03% 0.53% 0.02% 0.55% A Marginal Cumulative 0.01% 0.01% 0.11% 0.12% 0.02% 0.14% 0.09% 0.23% 0.05% 0.28% 0.10% 0.38% 0.06% 0.44% 0.21% 0.65% 0.11% 0.75% 0.06% 0.82% BBB Marginal Cumulative 0.40% 0.40% 3.45% 3.84% 1.58% 5.38% 1.45% 6.73% 0.98% 7.64% 0.56% 8.16% 0.28% 8.98% 0.25% 9.11% 0.16% 9.25% 0.42% 9.63% BB Marginal Cumulative 1.22% 1.22% 2.52% 3.77% 4.44% 7.98% 2.05% 2.55% 1.10% 1.65% 0.88% 1.72% 3.70% 9.87% 12.17% 13.14% 14.57% 15.15% 16.61% 19.69% B Marginal Cumulative 3.06% 3.06% 6.92% 7.48% 8.58% 6.08% 4.18% 3.74% 2.31% 2.00% 0.88% 9.77% 16.52% 23.69% 28.32% 31.32% 33.89% 35.41% 36.70% 37.26% CCC Marginal Cumulative 8.18% 15.57% 19.15% 12.18% 4.26% 10.25% 5.65% 3.15% 0.00% 4.28% 8.18% 22.48% 37.32% 44.96% 47.30% 52.70% 55.37% 56.78% 56.78% 58.63% (a) Rated by S&P at Issuance Based on 1,719 issues Source: Standard & Poor's (New York) and Author's Compilation 13 Mortality Losses by Original Rating All Rated Corporate Bondsa 1971-2003 1 2 3 4 Years after Issuance 5 6 7 8 9 10 AAA Marginal Cumulative 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% AA Marginal Cumulative 0.00% 0.00% 0.00% 0.00% 0.06% 0.06% 0.06% 0.12% 0.00% 0.12% 0.00% 0.12% 0.00% 0.12% 0.00% 0.12% 0.03% 0.15% 0.02% 0.17% A Marginal Cumulative 0.00% 0.00% 0.04% 0.04% 0.01% 0.05% 0.04% 0.09% 0.02% 0.11% 0.06% 0.17% 0.02% 0.19% 0.04% 0.23% 0.08% 0.31% 0.00% 0.31% BBB Marginal Cumulative 0.28% 0.28% 2.54% 2.81% 1.15% 3.93% 0.94% 4.83% 0.65% 5.45% 0.37% 5.80% 0.47% 6.24% 0.15% 6.38% 0.10% 6.48% 0.29% 6.75% BB Marginal Cumulative 0.73% 0.73% 1.51% 2.23% 3.24% 5.40% 1.46% 6.78% 1.40% 8.08% 0.75% 8.78% 0.99% 9.68% 0.28% 0.94% 1.18% 9.93% 10.78% 11.83% B Marginal Cumulative 2.13% 2.13% 5.05% 5.60% 6.00% 4.56% 2.51% 2.74% 1.64% 1.10% 0.67% 7.07% 12.38% 17.54% 21.30% 23.38% 25.00% 26.23% 27.04% 27.53% CCC Marginal Cumulative 5.48% 11.68% 15.37% 9.72% 3.20% 8.21% 4.80% 2.52% 0.00% 3.22% 5.48% 16.52% 29.35% 36.22% 38.26% 43.37% 46.05% 47.41% 47.41% 49.10% (a) Rated by S&P at Issuance Based on 1,535issues Source: Standard & Poor's (New York) and Author's Compilation 14 Classification & Prediction Accuracy Z Score (1968) Failure Model* 1969-1975 1976-1995 1997-1999 Year Prior To Failure Original Sample (33) Holdout Sample (25) Predictive Sample (86) Predictive Sample (110) Predictive Sample (120) 1 94% (88%) 96% (72%) 82% (75%) 85% (78%) 94% (84%) 2 72% 80% 68% 75% 74% 3 48% - - - - 4 29% - - - - 5 36% - - - - *Using 2.67 as cutoff score (1.81 cutoff accuracy in parenthesis) 15 Z Score Trend - LTV Corp. Z Score 3.5 2.99 3 2.5 1.8 2 1.5 1 0.5 0 -0.5 -1 -1.5 Safe Zone Grey Zone Distress Zone 1980 1981 1982 1983 Year 1984 1985 1986 Bankrupt July ‘86 16 Z Score International Harvester (Navistar) Z Score (1974 – 2001) 3.5 3 2.5 2 1.5 1 0.5 0 -0.5 Safe Zone Grey Zone Distress Zone '74 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 Year 17 Chrysler Corporation Z Score (1976 – 3Q 1998*) 4 Safe Zone 3.5 Z Score 3 Operating Co. 2.5 Grey Zone 2 1.5 Consolidated Co. 1 0.5 Gov’t Loan Guarantee 0 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 Year *Third quarter figures for 1998 are annualized 18 Z Score IBM Corporation Z Score (1980 – 2001) 6 5.5 5 4.5 4 3.5 3 2.5 2 1.5 1 0.5 0 Operating Co. Safe Zone July 1993: Downgrade AA- to A Consolidated Co. Grey Zone BBB BB B 1/93: Downgrade AAA to AA- 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 Year 19 Enron Credit Risk Measures EDF Equivalent Rating CC CCC B BB BBB A AA AAA Source: A. Saunders and L. Allen, Credit Risk Measurement; J. Wiley, 2002 20 Worldcom Credit Risk Measures Z" SCORES AND EDF'S FOR WORLDCOM (Q4'1999 - Q1'2002) 0.01 AAA 7.00 S&P Rating A- BBB BBB 6.00 AA BEQ* Z" Scores 5.00 0.10 BB BB- B+ B+ EDF BB 1.00 CCC+ B 3.00 EDF Score Z" Score BBB 4.00 CCC2.00 CC 10.00 CCC D 1.00 0.00 Q4'99 Q1'00 Quarter- Year D Q2'00 Q3'00 Q4'00 Z" UnAdj Q1'01 Q2'01 Z" Adj:3.85B Q3'01 Q4'01 Q1'02 Z" Adj:7.2B&50B Q2'02 100.00 Q3'02 EDF *BEQ = Z" Score Bond Equivalent Rating Sources: Compilation by the author (E. Altman, NYU Stern), the KMV (Moody's) Website and Standard & Poor's Corporation. 21 Key Industrial Financial Ratios U.S. Industrial Long-term Debt Three Year (1998-2000) Medians EBIT interest coverage (x) EBITDA interest coverage (x) Funds from operations/total debt (%) Free operating cash flow/total debt (%) Pretax return on capital (%) Operating income/sales (%) Long-term debt/capital (%) Total debt/capitalization (%) Companies AAA 21.4 26.5 128.8 84.2 34.9 27.0 13.3 22.9 8 AA 10.1 12.9 55.4 25.5 21.7 22.1 28.2 37.7 29 A BBB 6.1 3.7 9.1 5.8 43.2 30.8 15.0 8.5 19.4 13.6 18.6 15.4 33.9 42.5 42.5 48.2 136 218 BB 2.1 3.4 18.8 2.6 11.6 15.9 57.2 62.6 273 B CCC 0.8 0.1 1.8 1.3 7.8 1.6 -3.2 -12.9 6.6 1.0 11.9 11.9 69.7 68.8 74.8 87.7 281 22 Standard & Poor's, Corporate Ratings Criteria, Ratings and ratios. 22 Xerox Credit Quality: Z Score Analysis 1998-2000 4.00 3.50 3.46 Z-Score 3.00 2.38 2.50 2.00 1.35 1.50 1.00 0.50 12/98 Bond Rating Equivalents: 12/98 A 12/99 BB 06/00 B 12/99 Actual Rating (S&P / Moody’s): 12/98 A / A2 12/99 A / A2 07/00 A- / A3 12/00 BBB- / Ba1 5/02 BB / B1 6/00 23 Z’ Score Private Firm Model Z’ = .717X1 + .847X2 + 3.107X3 + .420X4 + .998X5 X1 = Current Assets - Current Liabilities Total Assets X2 = Retained Earnings Total Assets X3 = Earnings Before Interest and Taxes Total Assets X4 = Book Value of Equity Total Liabilities X5 = Sales Z’ > 2.90 - “Safe” Zone 1.23 < Z’ < 2.90 - “Grey” Zone Z’ < 1.23 - “Distress” Zone Total Assets 24 Z’’ Score Model for Manufacturers, Non-Manufacturer Industrials, & Emerging Market Credits Z’’ = 6.56X1 + 3.26X2 + 6.72X3 + 1.05X4 X1 = Current Assets - Current Liabilities Total Assets X2 = Retained Earnings Total Assets X3 = Earnings Before Interest and Taxes Total Assets X4 = Book Value of Equity Total Liabilities Z’’ > 2.60 - “Safe” Zone 1.1 < Z’’ < 2.60 - “Grey” Zone Z ” < 1.1 - “Distress” Zone 25 AN EMERGING MARKET CORPORATE MODEL US Bond Rating Equivalent Based on Adjusted Z” Score Model Z”=3.25+6.56X1+3.26X2+6.72X3+1.05X4 US Equivalent Rating AAA AA+ AA AAA+ A ABBB+ BBB BBBBB+ BB BBB+ B BCCC+ CCC CCCD Average EM Score Sample Size 8.15 8 7.6 7.3 18 7 15 6.85 24 6.65 42 6.4 38 6.25 38 5.85 59 5.65 52 5.25 34 4.95 25 4.75 65 4.5 78 4.15 115 3.75 95 3.2 23 2.5 10 1.75 6 0 14 27 An Emerging Market Credit Scoring System • Step 1- Calculate the EM Score and its Bond Rating Equivalent (BRE) compared to the U.S. Bond Market • Step 2 -Adjust (modify) the Bond Rating Equivalent for Forex Revaluation Vulnerability • High vulnerability = -1 rating class (3 notches) • Neutral vulnerability = -1 notch • Low vulnerability = no change • Step 3 -Adjust BRE for Risk of Industry in the Emerging Market vs. Risk of the Industry in the U.S. • ± - 1 or 2 notches 28 An Emerging Market Credit Scoring System • Step 4 -Adjustment of BRE for Competitive Position • Dominant firm in industry = +1 notch • Average firm in industry = no change • Poor competitive position = -1 notch • Step 5 -Special Collateral or Guarantees Impact on BRE • Step 6 -Assess the yield in the U.S. market on the modified BRE of the emerging Market credit, then add the sovereign yield spread. Finally, compare the resulting required yield with the yield in the market. 29 Z-Score Models and Bond Rating Equivalent Selected Auto and Telecom Companies Date GM Ford Fiat Daimler Telefonica Deutsche Telecom Telecom Italia France Telecom 31/12/03 31/12/03 31/12/03 31/12/03 31/12/03 31/12/03 31/12/03 31/12/03 Z-Score 0.84 0.43 1.07 1.15 1.58 0.53 1.19 0.69 Equivalent Rating CCC+ CCC CCC+ CCC+ BCCC CCC+ CCC Z"-Score 5.23 2.33 4.64 5.41 4.16 2.27 4.64 2.36 Equivalent Rating BB CCC B+ BB+ B CCC B+ CCC Revised Rating BBBB BB+ BBB BB B BB+ B S&P Rating BBB BBBBBBBB A BBB+ BBB+ BBB+ 30 Z-Score Models and Bond Rating Equivalent General Motors Co. Z-Score Dec 2003 Dec 2002 Dec 2001 Dec 2000 0.84 0.79 0.75 0.81 Equivalent Rating CCC+ CCC CCC CCC Z''-Score 5.23 4.89 4.08 3.73 Equivalent Rating BB BBBCCC+ Revised Rating BBBBBBBBB+ 31 Z-Score Models and Bond Rating Equivalent Ford Motors Co. Z-Score Equivalent Rating Z''-Score Equivalent Rating Revised Rating Dec 2003 0.43 CCC 2.33 CCC B Dec 2002 0.44 CCC 2.44 CCC B Dec 2001 0.36 CCC 1.87 CCC- B- Dec 2000 0.53 CCC 1.93 CCC- B- 32 Z-Score Models and Bond Rating Equivalent Fiat Auto S.p.A. Z-Score Dec 2003 Dec 2002 Dec 2001 Dec 2000 1.07 0.84 0.87 0.92 Equivalent Rating CCC+ CCC+ CCC+ CCC+ Z''-Score 4.64 4.50 4.32 4.09 Equivalent Rating B+ B B B- Revised Rating BB+ BB BB BB- 33 Z-Score Models and Bond Rating Equivalent Daimler-Chrysler Z-Score Dec 2003 Dec 2002 Dec 2001 Dec 2000 1.38 1.15 1.07 1.46 Equivalent Rating BCCC+ CCC+ B- Z''-Score 5.41 3.93 3.55 5.08 Equivalent Rating BB+ BCCC+ BB Revised Rating BBB BBB+ BBB- 34 Z-Score Models and Bond Rating Equivalent Telefonica Z-Score Equivalent Rating Z''-Score Equivalent Rating Revised Rating Dec 2003 1.58 B- 4.16 B BB Dec 2002 1.02 CCC+ 3.60 CCC+ B Dec 2001 1.32 B- 3.98 B- B+ Dec 2000 1.27 CCC+ 3.91 B- B+ 35 Z-Score Models and Bond Rating Equivalent Deutsche Telecom Z-Score Equivalent Rating Z''-Score Equivalent Rating Revised Rating Dec 2003 0.53 CCC 2.27 CCC B Dec 2002 0.29 CCC- 2.01 CCC B Dec 2001 0.67 CCC 3.21 CCC+ B Dec 2000 1.04 CCC+ 3.34 CCC+ B 36 Z-Score Models and Bond Rating Equivalent Telecom Italia Z-Score Equivalent Rating Z''-Score Equivalent Rating Revised Rating Dec 2003 1.19 CCC+ 4.64 B+ BB+ Dec 2002 0.71 CCC 4.23 B BB Dec 2001 0.64 CCC 4.10 B- B+ Dec 2000 0.58 CCC 3.72 CCC+ B+ 37 Z-Score Models and Bond Rating Equivalent France Telecom Z-Score Equivalent Rating Z''-Score Equivalent Rating Revised Rating Dec 2003 0.69 CCC 2.36 CCC B Dec 2002 (0.19) D 0.40 CCC- B- Dec 2001 0.42 CCC 2.71 CCC B Dec 2000 0.70 CCC 1.93 CCC- B- 38 Mexican Firms Z-Score Analysis 39 Mexican Corporate Issuers – EM Scores and Modified Ratings (December 1994) Company Industry Aeromexico Apasco CCM Cemex Cydsa DESC Empresas ICA Femsa Gemex GIDUSA (Durango) GMD Gruma Grupo Dina Hylsamex IMSA Kimberly-Clark de Mexico Liverpool Moderna Ponderosa San Luis Sidek Simec Situr Synkro TAMSA TELMEX Televisa TMM Vitro Airlines Cement Supermarkets Cement Chemicals Conglomerate Construction Bottling Bottling Paper and Forest Products Construction Food Processing Auto Manufacturing Steel Steel Paper and Forest Products Retail Conglomerate Paper and Forest Products Autoparts Conglomerate Steel Hotel and Tourism Textile/Apparel Steel Pipes Telecommunications Cable and Media Shipping Glass EM Score Bond-Rating Equivalent Modified Rating Ratings M/S&P/D&P -4.42 8.48 4.78 5.67 4.67 4.23 5.96 6.37 5.4 4.61 4.85 5.56 5.54 5.51 5.45 8.96 9.85 5.28 6.64 2.69 4.68 4.42 5.17 1.59 3.34 9.57 7.29 5.34 5.18 D AAA BBBBBBBB BBB ABB+ B+ BB BBBBBBBBBBBBAAA AAA BB+ A CCC BBB+ BB+ CCCCCC+ AAA AA BB+ BB+ D A B+ BBBB+ BB+ BB BBB+ BB+ BB BBBB+ BB+ BBBBAA A+ BB+ BB CCCB BB CCC B AABBB+ BB+ BB NR/NR/NR Ba2/NR/NR NR/NR/NR Ba3/BB/BB NR/NR/NR NR/NR/NR B1/BB-/B+ NR/NR/NR Ba3/NR/NR B1/BB-/NR B3/NR/NR NR/NR/NR NR/NR/B NR/NR/NR NR/NR/NR NR/NR/NR NR/NR/NR NR/NR/NR NR/NR/NR NR/NR/NR NR/NR/CCC NR/NR/CCC NR/NR/CCC NR/NR/NR NR/NR/NR NR/NR/NR Ba2/NR/NR Ba2/BB-/NR Ba2/NR/NR 40 Presentation of the firms • We have calculated the Z”-score ratings of 13 major Mexican public companies from 1998 through 2002 – – – – – – – – – – – – – America Movil SA de CV Apasco SA de CV Cemex SA de CV Cintra SA de CV Coca-Cola Femsa SA de CV Fomento Economico Mexicano Grupo Carso SA de CV Grupo Televisa SA Empresas ICA Sociedad Kimberly-Clark de Mexico Telefonos de Mexico SA de CV Vitro SA de CV Wal-Mart de Mexico SA de CV Industry Telecommunications Construction Material Construction Material Airlines Beverages Beverages Diversified Media Construction and Engineering Paper Telecommunications Containers and Packaging Retail 41 Z”-score and Equivalent Bond Rating Z" − Score = 3.25 + 6.56 * BV of Equity Working Capital Retained Earnings EBIT + 3.26 * + 6.72 * + 1.05 * Total Assets Total Assets Total Assets BV of Liability Z''-Score Safe zone 8.15 7.60 7.30 7.00 6.85 6.65 6.40 6.25 5.85 > 8.15 8.15 7.60 7.30 7.00 6.85 6.65 6.40 6.25 Rating AAA AA+ AA AAA+ A ABBB+ BBB Z''-Score 5.65 5.25 4.95 4.75 4.50 4.15 3.75 3.20 2.50 1.75 < 1.75 Rating 5.85 5.65 5.25 4.95 4.75 4.50 4.15 3.75 3.20 2.50 1.75 BBBBB+ BB BBB+ B BCCC+ CCC CCCD Grey zone Distress zone 42 Z”-score Distressed models and S&P Ratings (As of December 31, 2002) Z"-Score Rating Mexico Credit Rating (Foreign Currency LT Debt) S&P Bond Rating AAA 02/07/02 03/13/00 02/10/95 07/29/92 America Movil SA de CV Apasco SA de CV Cemex SA de CV Coca-Cola Femsa SA de CV Empresas ICA Sociedad Controladora Grupo Televisa SA Kimberly-Clark de Mexico Telefonos de Mexico SA de CV Vitro SA de CV n.a: not available BBBBB+ BB BB+ Dec 94 n.a. AAA BBBABBB AA AAA AAA BB+ Dec 02 BB AA+ B+ AAA CCC+ AA A BBB B- S&P Rating Dec 02 BBB+ BBB+ BBBBBB CCC BBBABBB+ B+ AAAmerica Movil BBB+ Cemex Kimberly-Clark de Mexico Telefonos de Mexico Apasco Femsa Grupo Televisa BB Vitro BICA D Source: Bloomberg B- BB BBB+ Z"-score Equivalent Bond Rating AA- AAA 43 Alfa, S.A. de C.V. Alfa, S.A. de C.V. 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 4Q90 4Q91 4Q92 4Q93 4Q94 4Q95 4Q96 4Q97 4Q98 4Q99 4Q00 4Q01 4Q02 4Q03 44 America Movil SA de CV (provides wireless communications services in Mexico) Z"-Score Equivalent Rating 1 10.0 8.0 AAA 0.8 7.86 A+ BBB+ 0.6 6.0 5.73 5.19 B+ 4.0 0.4 CCC+ 2.0 0.2 - D 0 Dec 1998 Dec 1999 Dec 2000 Dec 2001 Dec 2002 45 Source: Bloomberg Apasco SA de CV (production and marketing of cement) Z"-Score 10.0 Equivalent Rating 1 9.97 9.14 8.0 7.74 7.02 AAA 0.8 A+ BBB+ 0.6 7.01 6.0 B+ 4.0 0.4 CCC+ 2.0 0.2 - D 0 Dec 1998 Dec 1999 Dec 2000 Dec 2001 Dec 2002 46 Source: Bloomberg Holcim Apasco, S.A. de C.V. Holcim Apasco, S.A. de C.V. 12.0 10.0 8.0 6.0 4.0 2.0 4Q90 4Q91 4Q92 4Q93 4Q94 4Q95 4Q96 4Q97 4Q98 4Q99 4Q00 4Q01 4Q02 4Q03 47 Cemex SA de CV (production, distribution, marketing, and sale of cement ) Z"-Score Equivalent Rating 1 10.0 AAA 0.8 8.0 A+ BBB+ 0.6 6.04 6.0 5.59 5.58 4.69 4.0 4.70 B+ 0.4 CCC+ 2.0 0.2 - D 0 Dec 1998 Dec 1999 Dec 2000 Dec 2001 Dec 2002 48 Source: Bloomberg Cintra SA de CV (AeroMéxico, Mexicana, Aerocaribe, Aerolitoral,…) Z"-Score Equivalent Rating 1 10.0 AAA 0.8 8.0 A+ BBB+ 0.6 6.0 4.63 4.0 4.52 B+ 0.4 CCC+ 4.41 2.64 2.71 2.0 0.2 D 0 Dec 1998 Dec 1999 Dec 2000 Dec 2001 Dec 2002 49 Source: Bloomberg Coca-Cola Femsa SA de CV (production, distribution, and marketing of certain Coca-Cola trademark beverages) Z"-Score 10.0 9.69 AAA 0.8 8.82 8.0 A+ BBB+ 0.6 7.11 6.0 Equivalent Rating 1 6.26 B+ 5.23 4.0 0.4 CCC+ 2.0 0.2 D 0 Dec 1998 Dec 1999 Dec 2000 Dec 2001 Dec 2002 50 Source: Bloomberg Coca-Cola Femsa, S.A. de C.V. Coca-Cola Femsa, S.A. de C.V. 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 4Q90 4Q91 4Q92 4Q93 4Q94 4Q95 4Q96 4Q97 4Q98 4Q99 4Q00 4Q01 4Q02 4Q03 51 Comercial Mexicana, S.A. de C.V. Comercial Mexicana, S.A. de C.V. 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 4Q90 4Q91 4Q92 4Q93 4Q94 4Q95 4Q96 4Q97 4Q98 4Q99 4Q00 4Q01 4Q02 4Q03 52 Fomento Economico Mexicano SA de CV (brews beer and bottles soft drinks) Z"-Score Equivalent Rating 1 10.0 8.0 7.35 6.91 6.0 AAA 0.8 7.34 6.64 6.31 A+ BBB+ 0.6 B+ 4.0 0.4 CCC+ 2.0 0.2 D 0 Dec 1998 Dec 1999 Dec 2000 Dec 2001 Dec 2002 53 Source: Bloomberg Grupo Bimbo, S.A. de C.V. Grupo Bimbo, S.A. de C.V. 10.0 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 4Q90 4Q91 4Q92 4Q93 4Q94 4Q95 4Q96 4Q97 4Q98 4Q99 4Q00 4Q01 4Q02 4Q03 54 Grupo Carso SA de CV (holding company in diverse industries (e.g. tobacco; mining, hospitality, retail, music stores,…)) Z"-Score Equivalent Rating 1 10.0 AAA 0.8 8.0 6.40 6.0 6.37 6.01 A+ BBB+ 0.6 5.81 5.58 B+ 4.0 0.4 CCC+ 2.0 0.2 D 0 Dec 1998 Dec 1999 Dec 2000 Dec 2001 Dec 2002 55 Source: Bloomberg Grupo Carso, S.A. de C.V. Grupo Carso, S.A. de C.V. 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 4Q90 4Q91 4Q92 4Q93 4Q94 4Q95 4Q96 4Q97 4Q98 4Q99 4Q00 4Q01 4Q02 4Q03 56 Grupo Continental, S.A. Grupo Continental, S.A. 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 4Q90 4Q91 4Q92 4Q93 4Q94 4Q95 4Q96 4Q97 4Q98 4Q99 4Q00 4Q01 4Q02 4Q03 57 Grupo Elektra, S.A. de C.V. Grupo Elektra, S.A. de C.V. 10.0 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 4Q90 4Q91 4Q92 4Q93 4Q94 4Q95 4Q96 4Q97 4Q98 4Q99 4Q00 4Q01 4Q02 4Q03 58 Grupo Imsa, S.A. de C.V. Grupo Imsa, S.A. de C.V. 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 4Q90 4Q91 4Q92 4Q93 4Q94 4Q95 4Q96 4Q97 4Q98 4Q99 4Q00 4Q01 4Q02 4Q03 59 Grupo Modelo, S.A. de C.V. Grupo Modelo, S.A. de C.V. 12.0 10.0 8.0 6.0 4.0 2.0 4Q90 4Q91 4Q92 4Q93 4Q94 4Q95 4Q96 4Q97 4Q98 4Q99 4Q00 4Q01 4Q02 4Q03 60 Grupo México, S.A. de C.V. Grupo México, S.A. de C.V. 12.0 10.0 8.0 6.0 4.0 2.0 4Q90 4Q91 4Q92 4Q93 4Q94 4Q95 4Q96 4Q97 4Q98 4Q99 4Q00 4Q01 4Q02 4Q03 61 Grupo Televisa SA (television broadcasting) Z"-Score Equivalent Rating 1 10.0 8.77 8.58 8.0 AAA 0.8 8.48 7.53 7.66 A+ BBB+ 0.6 6.0 B+ 4.0 0.4 CCC+ 2.0 0.2 D 0 Dec 1998 Dec 1999 Dec 2000 Dec 2001 Dec 2002 62 Source: Bloomberg Grupo Televisa, S.A. Grupo Televisa, S.A. 9.0 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 4Q90 4Q91 4Q92 4Q93 4Q94 4Q95 4Q96 4Q97 4Q98 4Q99 4Q00 4Q01 4Q02 4Q03 63 Empresas ICA Sociedad Controladora SA (construction company) 10.0 1 8.0 AAA 0.8 6.0 A+ BBB+ 0.6 5.17 4.52 B+ 4.0 4.12 3.48 0.4 CCC+ 3.42 2.0 0.2 D 0 Dec 1998 Dec 1999 Dec 2000 Dec 2001 Dec 2002 64 Source: Bloomberg Industrias Peñoles, S.A. de C.V. Industrias Peñoles, S.A. de C.V. 12.0 10.0 8.0 6.0 4.0 2.0 4Q90 4Q91 4Q92 4Q93 4Q94 4Q95 4Q96 4Q97 4Q98 4Q99 4Q00 4Q01 4Q02 4Q03 65 Kimberly-Clark de Mexico SA de CV (manufacture and sale of consumer and industrial paper products ) Z"-Score Equivalent Rating 1 10.0 8.90 8.0 AAA 0.8 8.72 7.74 7.40 6.77 6.0 A+ BBB+ 0.6 B+ 4.0 0.4 CCC+ 2.0 0.2 - D 0 Dec 1998 Dec 1999 Dec 2000 Dec 2001 Dec 2002 66 Source: Bloomberg El Puerto de Liverpool, S.A. de C.V. El Puerto de Liverpool, S.A. de C.V. 14.0 12.0 10.0 8.0 6.0 4.0 2.0 4Q90 4Q91 4Q92 4Q93 4Q94 4Q95 4Q96 4Q97 4Q98 4Q99 4Q00 4Q01 4Q02 4Q03 67 Organización Soriana, S.A. de C.V. Organización Soriana, S.A. de C.V. 12.0 10.0 8.0 6.0 4.0 2.0 4Q90 4Q91 4Q92 4Q93 4Q94 4Q95 4Q96 4Q97 4Q98 4Q99 4Q00 4Q01 4Q02 4Q03 68 Telefonos de Mexico SA de CV (provide telecommunications services (TELMEX)) Z"-Score Equivalent Rating 1 10.0 8.84 8.0 AAA 0.8 8.50 6.03 6.0 B+ 5.17 4.0 A+ BBB+ 0.6 0.4 CCC+ 4.32 2.0 0.2 - D 0 Dec 1998 Dec 1999 Dec 2000 Dec 2001 Dec 2002 69 Source: Bloomberg Telefonos de México, S.A. de C.V. Telefonos de México, S.A. de C.V. 12.0 10.0 8.0 6.0 4.0 2.0 4Q90 4Q91 4Q92 4Q93 4Q94 4Q95 4Q96 4Q97 4Q98 4Q99 4Q00 4Q01 4Q02 4Q03 70 TV Azteca, S.A. de C.V. TV Azteca, S.A. de C.V. 8.0 7.0 6.0 5.0 4.0 3.0 2.0 1.0 4Q90 4Q91 4Q92 4Q93 4Q94 4Q95 4Q96 4Q97 4Q98 4Q99 4Q00 4Q01 4Q02 4Q03 71 Vitro SA de CV (manufacture and marketing of glass and plastic containers) Z"-Score Equivalent Rating 1 10.0 AAA 0.8 8.0 6.0 5.11 A+ BBB+ 0.6 5.11 B+ 4.22 4.0 4.00 0.4 CCC+ 3.40 2.0 0.2 - D 0 Dec 1998 Dec 1999 Dec 2000 Dec 2001 Dec 2002 72 Source: Bloomberg Wal-Mart de Mexico SA de CV (retail) Z"-Score Equivalent Rating 1 10.0 9.09 9.02 8.0 7.86 7.67 7.75 AAA 0.8 A+ BBB+ 0.6 6.0 B+ 4.0 0.4 CCC+ 2.0 0.2 D 0 Dec 1998 Dec 1999 Dec 2000 Dec 2001 Dec 2002 73 Source: Bloomberg KMV & HIBRYID SCORING MODELS KMV Credit Monitor Model • Provides a quantitative assessment of the credit risk of publicly traded companies • The model is theoretically rather than empirically based • It is built around the market’s valuation of a firm’s creditworthiness • The model can be applied to the universe of publicly-traded companies • The universe consists of thousands of companies in the U.S. • By contrast, only approximately 2000 companies have publicly-traded debt that is rated by the rating agencies. Even then, bond price data is often difficult to get. 75 The Market’s Valuation of Debt • The stock market’s perception of the value of a firm’s equity are readily conveyed in a traded company’s stock price • The information contained in the firm’s stock price and balance sheet can be translated into an implied risk of default through two relationships: • The relationship between the market value of a firm’s equity and the market value of its assets. • The relationship between the volatility of a firm’s assets and the volatility of a firm’s equity. 76 KMV Credit Monitor Output • A quantitative estimate of the default probability called the expected default frequency (EDF). • EDFs are calibrated to measure the probability of a borrower defaulting within one year. • EDFs are reported in percentages ranging from 0 to 20. 77 KMV Model - Empirical Result STEP 1 - Model Estimates Market Value and Volatility of Firm’s Assets STEP 2 - Then calculates the Distance-to-Default (# of Standard Deviations) Distance-to-Default is a Type of Asset/Liability Coverage Ratio STEP 3 - Distance-to-Default of a Firm is Mapped Against a Database of Empirical Frequencies of Similar Distance-to-Default Companies to Obtain Expected Default Frequency (EDF) for a Firm 78 Estimation of Market Value And Volatility of Firm’s Assets • Asset Values are Based on Underlying Value of Firm, Independent of Firm’s Liabilities. • Asset Volatility Calculated as the Annualized Standard Deviation of Percentage Changes in the Market Value of Assets. • Equity Market Value and its Volatility, as Well as the Liability Structure, are Used as Proxies for the Asset’s Value and Volatility. • Option Theory of Assets Used to Value Assets Since MV of Debt is Not Known. If Debt MV is Known, then A=E+D (MV). But, MV Assets are Calculated by Knowing Only the MV Equity and PV of Liabilities. 79 Estimation of Market Value And Volatility of Firm’s Assets (continued) • KMV Assumes that All Short Term Debt and 50% of Long Term Liabilities Are Used to Calculate the Default Point (Was 25% of LTD). • When MV Assets < Payable Liabilities then Firm Defaults. Firm Cannot Sell Off Assets or Raise Additional Capital Because All Existing Assets are Fully Encumbered. 80 KMV Strengths • Can be applied to any publicly-traded company • Responsive to changing conditions, (EDF updated quarterly) • Based on stock market data which is timely and contains a forward looking view • Strong theoretical underpinnings (versus ad-hoc models) 81 KMV Weaknesses • Difficult to diagnose a theoretical EDF (what is the distribution of asset return outcomes) • Problems in applying model to private companies and thinlytraded companies • Results sensitive to stock market movements (does the stockmarket over-react to news?) • Ad-hoc definition of anticipated liabilities (i.e.. 50% of longterm debt) 82 83 KMV’S Expected Default Frequency (EDF) Based on empirical observation of the Historical Frequency of the Number of Firms that Defaulted With Asset Values (Equity + Debt) Exceeding Face Value of Debt Service By a Certain Number of Standard (Std.) Deviations at one year prior to default. For Example: Current Market Value of Assets = $ 910 Expected One Year Growth in Assets = Expected One Year Asset Value = $1,000 Standard Deviation = $ 150 Par Value of Debt Service in One Year = $ 700 10% Therefore: # Std. Deviations from Debt Service = 2 Expected Default Frequency (EDF) EDF = Number of Firms that Defaulted With Asset Values 2 Std. Deviations from Debt Service Total Population of Firms With 2 Std. Deviations from Debt Service e.g.. = 50 Defaults 1,000 Population = .05 = EDF 84 Comparing Z-Score and KMV-EDF Bond Rating Equivalents IBM Corporation 85 Diversification Based on Stock-Market Correlations (KMV) • Uses Contingent Claims Approach based on the level and volatility of common stock prices to assess the value of the equity and its potential distribution. Compare that distribution of equity values plus the level of debt (total assets) to the anticipated debt level in the future in order to attain the probability of default (assets < liabilities). Losses based on expected recoveries. • Assess the correlation of each loan’s expected return based on correlations of stock prices and the unexpected losses from different combination of Loans. • Observes the possible Sharpe Ratios (expected return spread / unexpected loss) on various combinations of loans with differential investments (weight) in each loan. • Stipulates the official frontier portfolio. 86 BondScore (from “Credit Sights) Credit Score Model • BondScore calculates credit risks on a weekly basis for all U.S. non-financial corporations with total assets in excess of $250 millions and publicly traded equity (approx. 2,200 issuers). The model’s output is a one year default probability estimate called Credit Risk Estimate or CRE. • BondScore Credit Risk Estimates (CRE) are used in two capacities: to measure trend in credit risk migration; and to measure divergence from the rating agencies. BondScore helps to predict credit risk migration, spread movements and rating agency actions through its estimation of one year default probabilities. • The BondScore model was created using 25 years of data on financial ratios, equity prices on defaults on over 2,000 issuers. • A non linear logistic regression-based “hybrid” model, BondScore uses Altmantype financial ratios in addition to Merton-type equity inputs to predict defaults. Each of the model’s inputs were found to be significant predictors of default. 87 BondScore Model Inputs • EBITDA margin (EBITDA/Sales) • Asset turnover (Sales/Assets) • Leverage (debt including capitalized leases/equity market capitalization plus book value of debt) • Size (log relative assets to all other BondScore issuers) • Liquidity (Quick Ratio) • Volatility of stock returns (standard deviation of error in beta equation; measures idiosyncratic volatility of issuer vs. pure volatility) • Volatility of cash flow (standard deviation of EBITDA/Assets over past ten years) 88 Argenti (A Score System) Defects In Management Weight 8 - Chief Executive is an autocrat 4 - He is also the chairman 2 - Passive Board - an autocrat assures this 2 - Unbalanced Board - too many engineers or too many finance types 1 - Poor management depth In Accountancy 3 - No budgets or budgetary controls 3 - No cash flow plans, or not updated 3 - No costing system. Cost and contribution of each product unknown 15 - Poor response to change, old fashioned product, obsolete factory, out-of-date marketing Total Defects 42 Pass 10 89 Argenti (A Score System) Symptoms Weight 5 - Financial signs, such as Z Score 4 - Creative accounting. Chief executive is the first to see signs of failure, and in an attempt to hide it from creditors and the banks, accounts are ‘glossed over’ by overvaluing stocks, using lower depreciation, etc. 3 - Non-financial signs, such as untidy offices, frozen salaries, chief executive ‘ill’, high staff turnover, low morale, rumors 1 - “Terminal signs” Total Symptoms 13 Total Possible Score 100 Total Score Pass 25 Prognosis 0-10 No Worry (High Pass) 0-25 Pass 10-18 Cause for Anxiety (Pass) 18-35 Grey Zone - Warning Sign >35 Company “At Risk” 90 [...]...Marginal and Cumulative Mortality Rate Equation MMR(t) = Total value of defaulting debt in year (t) total value of the population at the start of the year (t) MMR = Marginal Mortality Rate One can measure the cumulative mortality rate (CMR) over a specific time period (1,2,…, T years) by subtracting the product of the surviving populations of each of the previous years from one (1.0), that is,... Zone BBB BB B 1/93: Downgrade AAA to AA- 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 Year 19 Enron Credit Risk Measures EDF Equivalent Rating CC CCC B BB BBB A AA AAA Source: A Saunders and L Allen, Credit Risk Measurement; J Wiley, 2002 20 Worldcom Credit Risk Measures Z" SCORES AND EDF'S FOR WORLDCOM (Q4'1999 - Q1'2002) 0.01 AAA 7.00 S&P Rating A- BBB BBB 6.00 AA BEQ* Z" Scores 5.00 0.10... 58.63% (a) Rated by S&P at Issuance Based on 1,719 issues Source: Standard & Poor's (New York) and Author's Compilation 13 Mortality Losses by Original Rating All Rated Corporate Bondsa 1971-2003 1 2 3 4 Years after Issuance 5 6 7 8 9 10 AAA Marginal Cumulative 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% AA Marginal Cumulative... Dominant firm in industry = +1 notch • Average firm in industry = no change • Poor competitive position = -1 notch • Step 5 -Special Collateral or Guarantees Impact on BRE • Step 6 -Assess the yield in the U.S market on the modified BRE of the emerging Market credit, then add the sovereign yield spread Finally, compare the resulting required yield with the yield in the market 29 Z-Score Models and Bond... Equivalent Rating AAA AA+ AA AAA+ A ABBB+ BBB BBBBB+ BB BBB+ B BCCC+ CCC CCCD Average EM Score Sample Size 8.15 8 7.6 7.3 18 7 15 6.85 24 6.65 42 6.4 38 6.25 38 5.85 59 5.65 52 5.25 34 4.95 25 4.75 65 4.5 78 4.15 115 3.75 95 3.2 23 2.5 10 1.75 6 0 14 27 An Emerging Market Credit Scoring System • Step 1- Calculate the EM Score and its Bond Rating Equivalent (BRE) compared to the U.S Bond Market • Step 2 -Adjust... 998X5 X1 = Current Assets - Current Liabilities Total Assets X2 = Retained Earnings Total Assets X3 = Earnings Before Interest and Taxes Total Assets X4 = Book Value of Equity Total Liabilities X5 = Sales Z’ > 2.90 - “Safe” Zone 1.23 < Z’ < 2.90 - “Grey” Zone Z’ < 1.23 - “Distress” Zone Total Assets 24 Z’’ Score Model for Manufacturers, Non-Manufacturer Industrials, & Emerging Market Credits Z’’ = 6.56X1... 74.8 87.7 281 22 Standard & Poor's, Corporate Ratings Criteria, Ratings and ratios 22 Xerox Credit Quality: Z Score Analysis 1998-2000 4.00 3.50 3.46 Z-Score 3.00 2.38 2.50 2.00 1.35 1.50 1.00 0.50 12/98 Bond Rating Equivalents: 12/98 A 12/99 BB 06/00 B 12/99 Actual Rating (S&P / Moody’s): 12/98 A / A2 12/99 A / A2 07/00 A- / A3 12/00 BBB- / Ba1 5/02 BB / B1 6/00 23 Z’ Score Private Firm Model Z’ =... Q1'00 Quarter- Year D Q2'00 Q3'00 Q4'00 Z" UnAdj Q1'01 Q2'01 Z" Adj:3.85B Q3'01 Q4'01 Q1'02 Z" Adj:7.2B&50B Q2'02 100.00 Q3'02 EDF *BEQ = Z" Score Bond Equivalent Rating Sources: Compilation by the author (E Altman, NYU Stern), the KMV (Moody's) Website and Standard & Poor's Corporation 21 Key Industrial Financial Ratios U.S Industrial Long-term Debt Three Year (1998-2000) Medians EBIT interest coverage... Assets - Current Liabilities Total Assets X2 = Retained Earnings Total Assets X3 = Earnings Before Interest and Taxes Total Assets X4 = Book Value of Equity Total Liabilities Z’’ > 2.60 - “Safe” Zone 1.1 < Z’’ < 2.60 - “Grey” Zone Z ” < 1.1 - “Distress” Zone 25 AN EMERGING MARKET CORPORATE MODEL US Bond Rating Equivalent Based on Adjusted Z” Score Model Z”=3.25+6.56X1+3.26X2+6.72X3+1.05X4 US Equivalent... -Adjust (modify) the Bond Rating Equivalent for Forex Revaluation Vulnerability • High vulnerability = -1 rating class (3 notches) • Neutral vulnerability = -1 notch • Low vulnerability = no change • Step 3 -Adjust BRE for Risk of Industry in the Emerging Market vs Risk of the Industry in the U.S • ± - 1 or 2 notches 28 An Emerging Market Credit Scoring System • Step 4 -Adjustment of BRE for Competitive ... estimate annual and cumulative defaults 10 Marginal and Cumulative Mortality Rate Equation MMR(t) = Total value of defaulting debt in year (t) total value of the population at the start of the year... Empresas ICA Sociedad Controladora Grupo Televisa SA Kimberly-Clark de Mexico Telefonos de Mexico SA de CV Vitro SA de CV n .a: not available BBBBB+ BB BB+ Dec 94 n .a AAA BBBABBB AA AAA AAA BB+... D AAA BBBBBBBB BBB ABB+ B+ BB BBBBBBBBBBBBAAA AAA BB+ A CCC BBB+ BB+ CCCCCC+ AAA AA BB+ BB+ D A B+ BBBB+ BB+ BB BBB+ BB+ BB BBBB+ BB+ BBBBAA A+ BB+ BB CCCB BB CCC B AABBB+ BB+ BB NR/NR/NR Ba2/NR/NR